HSBC 2006 Annual Report Download - page 125

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In the UK, growth in Personal Financial
Services was strong in savings and packaged current
accounts, but mortgage and credit card lending also
increased. In Commercial Banking, customer
recruitment boosted growth in deposit balances and
spreads widened, particularly on US dollar
denominated accounts. Commercial lending balances
were higher, in part reflecting the strong growth
throughout 2005. In France, revenues declined
despite growth in lending, due to competitive pricing
pressures and the impact of older, higher-yielding
hedges of the network’s funding surplus maturing.
Corporate, Investment Banking and Markets’
balance sheet management revenues declined as the
rising trend in short-term interest rates continued to
flatten yield curves.
In Hong Kong, net interest income rose by
15 per cent. Deposit spreads widened with
progressive interest rate rises, and balances increased
as customers took advantage of higher rates. HSBC
supported this growth with a number of promotions
and marketing campaigns during the year. In
Personal Financial Services, average savings and
deposit balances rose by 7 per cent. The launch of a
simplified mortgage pricing structure helped boost
mortgage balances and grow market share. A clear
focus on sales and targeted marketing helped achieve
strong growth in credit card balances, and the
number of cards in issue rose by 17 per cent to
4.6 million. Average corporate lending balances rose
as the economy gained momentum and investment
was channelled into mainland China. The benefit of
these developments, however, was substantially
offset by spread compression through the rising cost
of funds, and lower balance sheet management
revenues as short term interest rates continued to
rise, and yield curves remained flat.
In the Rest of Asia-Pacific, a 25 per cent rise in
net interest income was fuelled by balance sheet
growth in Personal Financial Services and
Commercial Banking. This reflected HSBC’s
continuing investment in growing the business
through network expansion, customer recruitment
and targeted marketing and promotions. In Personal
Financial Services, the emphasis on the recruitment
of HSBC Premier customers generated strong
deposit growth throughout the region, which funded
increased mortgage and credit card borrowing. Other
unsecured lending balances also grew significantly,
as HSBC expanded its consumer finance operations
in India, Australia and Indonesia. In corporate and
commercial banking, increased deposits raised
through customer recruitment and through higher
transactional balances in the payments and cash
management and the custody businesses were
significant to the growth in net interest income. On
the asset side, growth reflected strong demand for
credit as regional economies continued to expand
and trade flows increased.
In North America, net interest income increased
by 3 per cent. In the US Personal Financial Services
business, strong growth in mortgages, cards, and
other personal unsecured non-credit card lending
was funded by a 21 per cent rise in average deposits
to US$32.2 billion. This was led by the continued
success of the online savings product which grew by
US$6 billion to US$7 billion at 31 December 2006.
Higher spreads in credit cards, reflecting a lower
proportion of promotional balances and a degree of
re-pricing, were in contrast with most other
portfolios. Overall, asset spreads contracted, driven
by the effect on funding costs of a succession of
interest rate rises, while competitive pricing and
customer migration to higher yielding products
reduced spreads on deposits. Net interest income was
boosted in Canada by strong lending to personal and
commercial customers, supported by deposit raising
initiatives. However, these benefits were partly
offset by lower Corporate, Investment Banking and
Markets’ balance sheet management income as
spreads narrowed as a result of higher short-term
rates coupled with a flat yield curve in the US. The
increased deployment of liabilities to fund trading
activity also reduced growth in net interest income,
with a corresponding increase in trading income.
In Latin America, net interest income increased
by 17 per cent. In Mexico, deposit growth was
boosted by the continuing success of the ‘Tu Cuenta’
packaged account in Personal Financial Services.
Credit card, unsecured lending and mortgage
balances also grew strongly, though the benefit of
the latter was offset by competitive pressure on
spreads. In Brazil, where the domestic economy
improved and inflation remained low, rising
consumer demand for credit, together with increased
sales activity and customer recruitment, drove strong
lending growth. Deposits rose through current
accounts linked to the growing payroll loan business.
Growth in Commercial Banking was mainly in the
small and middle market customer segments. HSBC
increased focus on these businesses through network
expansion and the recruitment of additional sales
staff throughout the region. In Corporate, Investment
Banking and Markets, improved balance sheet
management revenues and growth in the payments
and cash management business were the major
contributors to interest income growth.
Average interest earning assets of
US$1,113 billion were US$114 billion, or 11 per
cent, higher than in 2005. On an underlying basis,